corpo cases part 1 july 2015

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 90580 April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners, vs.HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION, EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA, respondents.

Benito O. Ching, Jr. for petitioners.William R. Vetor for Equitable Banking Corp.Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.

CRUZ, J.:

A collection suit with preliminary attachment was filed by Equitable Banking Corporation against Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to intervene, alleging that (1) the loan transactions between Saw Chiao Lian and Equitable Banking Corp. were not approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no authority to contract such loans; and (3) there was collusion between the officials of Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to intervene was denied, and the petitioners appealed to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they submitted to and was approved by the lower court. But because it was not complied

with, Equitable secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at public auction to Freeman Management and Development Corp.

The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, holding that "the compromise agreement between Freeman, Inc., through its President, and Equitable Banking Corp. will not necessarily prejudice petitioners whose rights to corporate assets are at most inchoate, prior to the dissolution of Freeman, Inc. . . . And intervention under Sec. 2, Rule 12 of the Revised Rules of Court is proper only when one's right is actual, material, direct and immediate and not simply contingent or expectant."

It also ruled against the petitioners' argument that because they had already filed a notice of appeal, the trial judge had lost jurisdiction over the case and could no longer issue the writ of execution.

The petitioners are now before this Court, contending that:

1. The Honorable Court of Appeals erred in holding that the petitioners cannot intervene in Civil Case No. 88-44404 because their rights as stockholders of Freeman are merely inchoate and not actual, material, direct and immediate prior to the dissolution of the corporation;

2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners in said Civil Case No. 88-44404 was confined only to the order denying their motion to intervene and did not divest the trial court of its jurisdiction over the whole case.

The petitioners base their right to intervene for the protection of their interests as stockholders on Everett v. Asia Banking Corp.2 where it was held:

The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the corporation, but that the action must be brought by the Board of Directors, . . . has its exceptions. (If the corporation [were] under the complete control of the principal defendants, . . . it is obvious that a demand upon the Board of Directors to institute action and prosecute the same effectively would have been useless, and the law does not require litigants to perform useless acts.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian is essentially in personam and, as an action against defendants in their personal capacities, will not prejudice the petitioners as stockholders of the corporation. The Everett case is not applicable because it involved an action filed by the minority stockholders where the board of directors refused to bring an action in behalf of the corporation. In the case at bar, it was Freeman, Inc. that was being sued by the creditor bank.

Equitable also argues that the subject matter of the intervention falls properly within the original and exclusive jurisdiction of the Securities and Exchange Commission under P.D. No. 902-A. In fact, at the time the motion for intervention was filed, there was pending between Freeman, Inc. and the petitioners SEC Case No. 03577 entitled "Dissolution, Accounting, Cancellation of Certificate of Registration with Restraining Order or Preliminary Injunction and Appointment of Receiver." It also avers in its Comment that the intervention of the petitioners could have only caused delay and prejudice to the principal parties.

On the second assignment of error, Equitable maintains that the petitioners' appeal could only apply to the denial of their motion for intervention and not to the main case because their personality as party litigants had not been recognized by the trial court.

After examining the issues and arguments of the parties, the Court finds that the respondent court committed no reversible error in sustaining the denial by the trial court of the petitioners' motion for intervention.

In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second.

The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and interminable. And this is not the policy of the law.

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

On the second assignment of error, the respondent court correctly noted that the notice of appeal was filed by the petitioners on October 24, 1988, upon the denial of their motion to intervene, and the writ of execution was issued by the lower court on January 30, 1989. The petitioners' appeal could not have concerned the "whole" case (referring to the decision) because the petitioners "did not appeal the decision as indeed they cannot because they are not parties to the case despite their being stockholders of respondent

Freeman, Inc." They could only appeal the denial of their motion for intervention as they were never recognized by the trial court as party litigants in the main case.

Intervention is "an act or proceeding by which a third person is permitted to become a party to an action or proceeding between other persons, and which results merely in the addition of a new party or parties to an original action, for the purpose of hearing and determining at the same time all conflicting claims which may be made to the subject matter in litigation.4

It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by the statute or Rules of Court, must be in subordination to the main proceeding.5 It may be laid down as a general rule that an intervenor is limited to the field of litigation open to the original parties.6

In the case at bar, there is no more principal action to be resolved as a writ of execution had already been issued by the lower court and the claim of Equitable had already been satisfied. The decision of the lower court had already become final and in fact had already been enforced. There is therefore no more principal proceeding in which the petitioners may intervene.

As we held in the case of Barangay Matictic v. Elbinias:7

An intervention has been regarded, as merely "collateral or accessory or ancillary to the principal action and not an independent proceedings; and interlocutory proceeding dependent on and subsidiary to, the case between the original parties." (Fransisco, Rules of Court, Vol. 1, p. 721). With the final dismissal of the original action, the complaint in intervention can no longer be acted upon. In the case of Clareza v. Resales, 2 SCRA 455, 457-458, it was stated that:

That right of the intervenor should merely be in aid of the right of the original party, like the plaintiffs in this case. As this right of the plaintiffs had ceased to exist, there is nothing to aid or fight for. So the right of intervention has ceased to exist.

Consequently, it will be illogical and of no useful purpose to grant or even consider further herein petitioner's prayer for the issuance of a writ of mandamus to compel the lower court to allow and admit the petitioner's complaint in intervention. The dismissal of the expropriation case has no less the

inherent effect of also dismissing the motion for intervention which is but the unavoidable consequence.

The Court observes that even with the denial of the petitioners' motion to intervene, nothing is really lost to them.1âwphi1The denial did not necessarily prejudice them as their rights are being litigated in the case now before the Securities and Exchange Commission and may be fully asserted and protected in that separate proceeding.

WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.


SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant, vs.GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees.

Hill & Associates Law Offices for appellant.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for appellee National Waterworks & Sewerage Authority.

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because no notice of such proceeding was given to the members of the plaintiff corporation who were then in actual possession of said properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in

the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the corporation who are so numerous that the present complaint should be treated as a class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any time. This motion was denied by the trial court in its Order

dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the controversy.

I

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any one of the two branches of the Court of First Instance of Malolos, Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2The mere fact that a request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the court a quo acted within its authority in denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted and defended in the name of the real party in interest and that all persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation and not the corporation itself. The corporation has a separate. and distinct personality from its members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members have assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The corporation evidently did not have any rights violated by the defendants for which it could seek redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession of the land, issuance of the corresponding title in its name, and payment of damages. Neither can such reliefs be awarded to the members allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been filed in the names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation. 6 The mere fact that one is

president of a corporation does not render the property which he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for title, especially against parties other than the corporation. 8

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 9 This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. 17 Evidently, there can be no wrong without a

corresponding right, and no breach of duty by one person without a corresponding right belonging to some other person. 18 Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom he sues, and there must be that unity of interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of the right in dispute; for, although there may not be any privity between the numerous parties, there is a common title out of which the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state of facts, or in which a

general statute is interpreted, that does not involved a Question in which other parties are interested. ... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does not lie in actions for the recovery of property where several persons claim Partnership of their respective portions of the property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that they cannot all be held to have Identical title through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., concur.


THIRD DIVISION

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant, vs.QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

R E S O L U T I O N

FERNAN, J.:

In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with "malfeasance in office, corrupt practices and serious irregularities" allegedly committed as follows:

1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not himself the judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced but rather the company known as "Qualitrans Limousine Service, Inc.," a duly registered corporation; and,

2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a resident of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only and does not extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit at the Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had executed an affidavit before the Pasay City assistant fiscal stating that he is the owner/president of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised him to serve notice of garnishment on the Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of Manila for investigation, report and recommendation.

Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance stating that he is no longer interested in prosecuting the case against respondent Dalisay and that it was just a "misunderstanding" between them. Upon respondent's motion, the Executive Judge issued an order dated May 29, 1986 recommending the dismissal of the case.

It has been held that the desistance of complainant does not preclude the taking of disciplinary action against respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who holds a public position, especially an office directly connected with the administration of justice and the execution of judgments, must at all times be free from the appearance of impropriety.1

We hold that respondent's actuation in enforcing a judgment against complainant who is not the judgment debtor in the case calls for disciplinary action. Considering the ministerial nature of his duty in enforcing writs of execution, what is incumbent upon him is to ensure that only that portion of a decision ordained or decreed in the dispositive part should be the subject of execution.2 No more, no less. That the title of the case specifically names complainant as one of the respondents is of no moment as execution must conform to that directed in the dispositive portion and not in the title of the case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine Service, Inc. to reinstate the discharged employees and pay them full backwages. Respondent, however, chose to "pierce the veil of corporate entity" usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities.3

Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of execution sought to be implemented was dated July 9, 1984, or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff from enforcing a court writ outside his territorial jurisdiction without first notifying in writing and seeking the assistance of the sheriff of the place where execution shall take place.

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent

http://www.lawphil.net/judjuris/juri1987/jul1987/am_r-181-p_1987.html#fnt3



to three [3] months salary is hereby imposed with a stern warning that the commission of the same or similar offense in the future will merit a heavier penalty. Let a copy of this Resolution be filed in the personal record of the respondent.

SO ORDERED.


FIRST DIVISION

G.R. No. 101699 March 13, 1996

BENJAMIN A. SANTOS, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA, respondents.

VITUG, J.:p

In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A. Santos, former President of the Mana Mining and Development Corporation ("MMDC"), questions the resolution of the National Labor Relations Commission ("NLRC") affirming the decision of Labor Arbiter Fructuoso T. Aurellano who, having held illegal the

termination of employment of private respondent Melvin D. Millena, has ordered petitioner MMDC, as well as its president (herein petitioner) and the executive vice-president in their personal capacities, to pay Millena his monetary claims.

Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum calling the latter's attention to the failure of the company to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue ("BIR") on account of delayed payments of accrued salaries to the company's laborers and employees. 1

In a letter, dated 08 September 1986, Abaño advised private respondent thusly:

Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and the peace and order condition in Sorsogon has deteriorated. It is therefore, the board's decision that it would be useless for us to continue operations, especially if we will always be in the "hole," so to speak. Our first funds receipts will be used to pay all our debts. We will stop production until the advent of the dry season, and until the insurgency problem clears. We will undertake only necessary maintenance and repair work and will keep our overhead down to the minimum manageable level. Until we resume full-scale operations, we will not need a project accountant as there will be very little paper work at the site, which can be easily handled at Makati.

We appreciate the work you have done for Mana and we will not hesitate to take you back when we resume work at Gatbo. However it would be unfair to you if we kept you in the payroll and deprive you of the opportunity to earn more, during this period of Mana's crisis. 2

Private respondent expressed "shock" over the termination of his employment. He complained that he would not have resigned from the Sycip, Gorres & Velayo accounting firm, where he was already a senior staff auditor, had it not been for the assurance of a "continuous job" by MMDC's Engr. Rodillano E. Velasquez. Private respondent requested that he be reimbursed the "advances" he had made for the company and be paid his "accrued salaries/claims. 3

The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay and incentive leave pay against MMDC and its two top officials, namely, herein petitioner Benjamin A. Santos (the President) and Rodillano A. Velasquez (the executive vice-president). in his complaint-affidavit (position paper), submitted on 27 October 1986, Millena alleged, among other things, that his dismissal was merely an offshoot of his letter of 12 August 1986 to Abaño about the company's inability to pay its workers and to remit withholding taxes to the BIR. 4

A copy of the notice and summons was served on therein respondents (MMDC, Santos and Velasquez) on 29 October 1986. 5 At the initial hearing on 14 November 1986 before the Labor Arbiter, only the complainant, Millena, appeared; however, Atty. Romeo Perez, in representation of the respondents, requested by telegram that the hearing be reset to 01 December 1986. Although the request was granted by the Labor Arbiter, private respondent was allowed, nevertheless, to present his evidence ex parte at that initial hearing.

The scheduled 01st December 1986 hearing was itself later reset to 19 December 1986. On 05 December 1986, the NLRC in Legazpi City again received a telegram from Atty. Perez asking for fifteen (15) days within which to submit the respondents' position paper. On 19 December 1986, Atty. Perez sent yet another telegram seeking a further postponement of the hearing and asking for a period until 15 January 1987 within which to submit the position paper.

On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the position paper had finally been transmitted through the mail and that he was submitting the case for resolution without further hearing. The position paper was received by the Legazpi City NLRC office on 19 January 1987. Complainant Millena filed, on 26 February 1987, his rejoinder to the position paper.

On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid cause for terminating complainant's employment, ruled, citing this Court's pronouncement in Construction & Development Corporation of the Philippines vs. Leogardo, Jr. 6 that a partial closure of an establishment due to losses was a retrenchment measure that rendered the employer liable for unpaid salaries and other monetary claims. The Labor Arbiter adjudged

WHEREFORE, the respondents are hereby ordered to pay the petitioner the amount of P37,132.25 corresponding to the latter's unpaid salaries and advances; P5,400.00 for petitioner's 13th month pay; P3,340.95 as service incentive leave pay; and P5,400.00 as separation pay. The respondents are further ordered to pay the petitioner 10% of the monetary awards as attorney's fees.

All other claims are dismissed for lack of sufficient evidence.

SO ORDERED. 7

Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a "motion for reconsideration and/or appeal. 8 The motion/appeal was forthwith indorsed to the Executive Director of the NLRC in Manila.

In a resolution, dated 04 September 1989, the NLRC 9 affirmed the decision of the Labor Arbiter. It held that the reasons relied upon by MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy season, deteriorating peace and order situation and little paperwork, were "not causes mentioned under Article 282 of the Labor Code of the Philippines" and that Millena, being a regular employee, was "shielded by the tenurial clause mandated under the law. 10

A writ of execution correspondingly issued; however, it was returned unsatisfied for the failure of the sheriff to locate the offices of the corporation in the address indicated. Another writ of execution and an order of garnishment was thereupon served on petitioner at his residence.

Contending that he had been denied due process, petitioner filed a motion for reconsideration of the NLRC's resolution along with a prayer for the quashal of the writ of execution and order of garnishment. He averred that he had never received any notice, summons or even a copy of the complaint; hence, he said, the Labor Arbiter at no time had acquired jurisdiction over him.

On 16 August 1991, the NLRC 11 dismissed the motion for reconsideration. Citing Section 2, Rule 13, 12 and Section 13, Rule 14, 13 of the Rules of Court, it ruled that the Regional Arbitration office had not, in fact, been remiss in the observance of the legal processes for acquiring jurisdiction over the case and over the persons of the respondents therein. The NLRC was also convinced that Atty. Perez had been the authorized counsel of MMDC and its two most ranking officers.

In holding petitioner personally liable for private respondent's claim, the NLRC cited Article 289 14 of the Labor Code and the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the effect that "(t)he responsible officer of an employer corporation (could) be held personally, not to say even criminally, liable for non-payment of backwages," and that of Gudezvs. NLRC 16 which amplified that "where the employer corporation (was) no longer existing and unable to satisfy the judgment in favor of the employee, the officer should be liable for acting on behalf of the corporation.

In the instant petition for certiorari, petitioner Santos reiterates that he should not have been adjudged personally liable by public respondents, the latter not having validly acquired jurisdiction over his person whether by personal service of summons or by substituted service under Rule 19 of the Rules of Court.

Petitioner's contention is unacceptable. The fact that Atty. Romeo B. Perez has been able to timely ask for a deferment of the initial hearing on 14 November 1986, coupled with his subsequent active participation in the proceedings, should disprove the supposed want of service of legal process. Although as a rule, modes of service of summons are strictly followed in order that the court may acquire jurisdiction over the person of a defendant, 17such procedural modes, however, are liberally construed in quasi-judicial proceedings, substantial compliance with the same being considered adequate. 18 Moreover, jurisdiction over the person of the defendant in civil cases is acquired not only by service of summons but also by voluntary appearance in court and submission to its authority. 19 "Appearance" by a legal advocate is such "voluntary submission to a court's jurisdiction." 20 It may be made not only by actual physical appearance but likewise by the submission of pleadings in compliance with the order of the court or tribunal.

To say that petitioner did not authorize Atty. Perez to represent him in the case 21 is to unduly tax credulity. Like the Solicitor General, the Court likewise considers it unlikely that Atty. Perez would have been so irresponsible as to represent petitioner if he were not, in fact, authorized. 22 Atty. Perez is an officer of the court, and he must be presumed to have acted with due propriety. The employment of a counsel or the authority to employ an attorney, it might be pointed out, need not be proved in writing; such fact could be inferred from circumstantial evidence. 23 Petitioner was not just an ordinary official of the MMDC; he was the President of the company.

Petitioner, in any event, argues that public respondents have gravely abused their discretion "in finding petitioner solidarily liable with MMDC even (in) the absence of bad faith and malice on his part." 24 There is merit in this plea.

A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. 25 As a rule, this situation might arise when a corporation is used to evade a just and due obligation or to justify a wrong, 26 to shield or perpetrate fraud, 27 to carry out similar other unjustifable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. 28 In Tramat Mercantile, Inc., vs. Court of Appeals, 29 the Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When —

(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;

(3) He agrees to hold himself personally and solidarily liable with the corporation; or

(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has had a direct hand in the dismissal of private respondent enough to attribute to him (petitioner) a patently unlawful act while acting for the corporation. Neither can Article 289 30 of the Labor Code be applied since this law specifically refers only to the imposition of penalties under the Code. It is undisputed that the termination of petitioner's employment has, instead, been due, collectively, to the need for a further mitigation of losses, the onset of the rainy season, the insurgency problem in Sorsogon and the lack of funds to further support the mining operation in Gatbo.

It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs.NLRC, 31 for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of back wages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC 32 in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed, for the latter's claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability an the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission; 33 thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his the being owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in

terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents' back salaries.

The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC; 34 however, it should be clear from our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC 35 that the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner Benjamin Santos personally liable with Mana Mining and Development Corporation, which portion of the questioned judgment is now SET ASIDE. In all other respects, the questioned decision remains unaffected. No costs.

SO ORDERED.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.


EN BANC

G.R. No. L-15121 August 31, 1962

GREGORIO PALACIO, in his own behalf and in behalf of his minor child, MARIO PALACIO, plaintiffs-appellants, vs.FELY TRANSPORTATION COMPANY, defendant-appellee.

Antonio A. Saba for plaintiffs-appellants.Mercado, Ver and Reyes for defendant-appellee.

REGALA, J.:

This is an appeal by the plaintiffs from the decision of the Court of First Instance of Manila which dismissed their complaint.

Originally taken to the Court of Appeals, this appeal was certified to this Court on the ground that it raises purely questions of law.

The parties in this case adopt the following findings of fact of the lower court:

In their complaint filed with this Court on May 15, 1954, plaintiffs allege, among other things, "that about December, 1952, the defendant company hired Alfredo Carillo as driver of AC-787 (687) (a registration for 1952) owned and operated by the said defendant company; that on December 24, 1952, at about 11:30 a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon Street, Quezon City, wilfully, unlawfully and feloniously and in a negligent, reckless and imprudent manner, run over a child Mario Palacio of the herein plaintiff Gregorio Palacio; that on account of the aforesaid injuries, Mario Palacio suffered a simple fracture of the right tenor (sic), complete third, thereby hospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952, up to January 8, 1953, and continued to be treated for a period of five months thereafter; that the plaintiff Gregorio Palacio herein is a welder by

occupation and owner of a small welding shop and because of the injuries of his child he has abandoned his shop where he derives income of P10.00 a day for the support of his big family; that during the period that the plaintiff's (Gregorio Palacio's) child was in the hospital and who said child was under treatment for five months in order to meet the needs of his big family, he was forced to sell one air compressor (heavy duty) and one heavy duty electric drill, for a sacrifice sale of P150.00 which could easily sell at P350.00; that as a consequence of the negligent and reckless act of the driver Alfredo Carillo of the herein defendant company, the herein plaintiffs were forced to litigate this case in Court for an agreed amount of P300.00 for attorney's fee; that the herein plaintiffs have now incurred the amount of P500.00 actual expenses for transportation, representation and similar expenses for gathering evidence and witnesses; and that because of the nature of the injuries of plaintiff Mario Palacio and the fear that the child might become a useless invalid, the herein plaintiff Gregorio Palacio has suffered moral damages which could be conservatively estimated at P1,200.00.

On May 23, 1956, defendant Fely Transportation Co., filed a Motion to Dismiss on the grounds (1) that there is no cause of action against the defendant company, and (2) that the cause of action is barred by prior judgment..

In its Order, dated June 8, 1956, this Court deferred the determination of the grounds alleged in the Motion to Dismiss until the trial of this case.

On June 20, 1956, defendant filed its answer. By way of affirmative defenses, it alleges (1) that complaint states no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City, in which both the civil and criminal cases were simultaneously tried by agreement of the parties in said case. In the Counterclaim of the Answer, defendant alleges that in view of the filing of this complaint which is a clearly unfounded civil action merely to harass the defendant, it was compelled to engage the services of a lawyer for an agreed amount of P500.00.

During the trial, plaintiffs presented the transcript of the stenographic notes of the trial of the case of "People of the Philippines vs. Alfredo Carillo, Criminal

Case No. Q-1084," in the Court of First Instance of Rizal, Quezon City (Branch IV), as Exhibit "A".1äwphï1.ñët

It appears from Exhibit "A" that Gregorio Palacio, one of the herein plaintiffs, testified that Mario Palacio, the other plaintiff, is his son; that as a result of the reckless driving of accused Alfredo Carillo, his child Mario was injured and hospitalized from December 24, 1952, to January 8, 1953; that during all the time that his child was in the hospital, he watched him during the night and his wife during the day; that during that period of time he could not work as he slept during the day; that before his child was injured, he used to earn P10.00 a day on ordinary days and on Sundays from P20 to P50 a Sunday; that to meet his expenses he had to sell his compressor and electric drill for P150 only; and that they could have been sold for P300 at the lowest price.

During the trial of the criminal case against the driver of the jeep in the Court of First Instance of Quezon City (Criminal Case No. Q-1084) an attempt was unsuccessfully made by the prosecution to prove moral damages allegedly suffered by herein plaintiff Gregorio Palacio. Likewise an attempt was made in vain by the private prosecutor in that case to prove the agreed attorney's fees between him and plaintiff Gregorio Palacio and the expenses allegedly incurred by the herein plaintiffs in connection with that case. During the trial of this case, plaintiff Gregorio Palacio testified substantially to the same facts.

The Court of First Instance of Quezon City in its decision in Criminal Case No. 1084 (Exhibit "2") determined and thoroughly discussed the civil liability of the accused in that case. The dispositive part thereof reads as follows:

IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo Carillo y Damaso guilty beyond reasonable doubt of the crime charged in the information and he is hereby sentenced to suffer imprisonment for a period of Two Months & One Day of Arresto Mayor; to indemnify the offended party, by way of consequential damages, in the sum of P500.00 which the Court deems reasonable; with subsidiary imprisonment in case of insolvency but not to exceed ¹/3 of the principal penalty imposed; and to pay the costs.

On the basis of these facts, the lower court held action is barred by the judgment in the criminal case and, that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the defendant corporation.

Against that decision the plaintiffs appealed, contending that:

THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE DEFENDANT-APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS A RESULT OF CRIMINAL CASE NO. Q-1084 OF THE COURT OF FIRST INSTANCE OF QUEZON CITY FOR THE REASON THAT THE INCORPORATORS OF THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN, ARE ISABELO CALINGASAN HIMSELF, HIS SON AND DAUGHTERS;

THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTION OF ISABELO CALINGASAN IN INCORPORATING THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN, WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE CONVICTION OF HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY HIM:

THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF ACTION OF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR JUDGMENT.

With respect to the first and second assignments of errors, plaintiffs contend that the defendant corporate should be made subsidiarily liable for damages in the criminal case because the sale to it of the jeep in question, after the conviction of Alfred Carillo in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City was merely an attempt on the part of Isabelo Calingasan its president and general manager, to evade his subsidiary civil liability.

The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability1 resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., G.R. No. L-5677, May 25, 1953) Furthermore, the failure of the defendant corporation to prove that it has other property than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated.

And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of the defendant corporation as to the real party in interest. This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Sec. 2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)

Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency.

We also sustain plaintiffs' third assignment of error and hold that the present action is not barred by the judgment of the Court of First Instance of Quezon City in the criminal case. While there seems to be some confusion on part of the plaintiffs as to the theory on which the is based — whether ex-delito or quasi ex-delito (culpa aquiliana) — We are convinced, from the discussion prayer in the brief on appeal, that they are insisting the subsidiary civil liability of the defendant. As a matter of fact, the record shows that plaintiffs merely presented the transcript of the stenographic notes (Exhibit "A") taken at the hearing of the criminal case, which Gregorio Palacio corroborated, in support of their claim for damages. This rules out the defense of res judicata, because such liability proceeds precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in the sum P500.00.

WHEREFORE, the decision of the lower court is hereby reversed and defendants Fely Transportation and Isabelo Calingasan are ordered to pay, jointly and severally, the plaintiffs the amount of P500.00 and the costs.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and Makalintal, concur.Reyes, J.B.L., J., took no part.


FIRST DIVISION

G.R. No. 98185 December 11, 1992

SIBAGAT TIMBER CORPORATION, petitioner, vs.ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE CO., INC., respondents.

GRIÑO-AQUINO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated February 15, 1991 in CA-G.R. No. 20799 entitled, "Sibagat Timber Corp. vs. Adolfo B. Garcia, et al.," affirming the decision of the Regional Trail Court which dismissed the petitioner's petition for certiorari, prohibition and injunction with restraining order and writ of preliminary injunction and damages (Spl. Case No. 548, RTC, Branch I, Butuan City).

On August 30, 1988, respondent Sheriff Adolfo B. Garcia, who was entrusted with the implementation of the writ of execution issued by the Regional Trial Court, Branch 147, Makati, Metro Manila in Civil Case No. 7180 entitled, "USIPHIL, INC. vs. Del Rosario and Sons Logging Enterprises, Inc.," levied on the following personal properties of Del Rosario & Sons, Inc.:

One (1) Unit CAT Grader with SN 99E-5016.

One (1) Unit Generating Set with Cummins Engine No. 1074304 Model V-855QC and Generator 125 KVA No. HA-90071 1720-1 and Panel Switch Board.

One (1) Generating Set with CAT D-311 Series H No. 51B4241 w/ Generator No. 30TH 211 1800 RPM, 60 Cycles, 30KVA

One (1) pc. Engine Block CAT D-4600.

One (1) TD-25B w/ Hyster D988, Triple Drum Model BY B14 SN-9PI55E

One (1) TD-25A w/ No. Engine Number, w/ Radiator and X-2 Triple Drum Model 142 Yarder and blade.

which he scheduled for sale at public auction on September 7, 1988 at 10:00 o'clock in the morning. He also levied on:

One (1) Unit Reo Logging Truck (5) tonner not in running condition; and

One (1) Unit White Logging (5) tonner not in running condition.

which he scheduled for sale at public auction on September 8, 1988.

On the same date (August 30, 1988) that levy was made by the sheriff, the petitioner herein, through Mariano Rana, filed a third-party claim alleging that it is the lawful owner of the levied machinery and equipment, by virtue of deeds of sale executed in its favor by Del Rosario & Sons Logging Enterprises, Inc.

Pursuant to Section 17, Rule 39 of the Rules of Court, an indemnity bond was posted by the judgment creditor, USIPHIL, Inc., to indemnify the respondent sheriff against the claim of the third-party claimant.

On September 6, 1988, at 2:00 P.M., petitioner filed in the Regional Trial Court of Butuan City, a petition for "Certiorari, Prohibition and Injunction with Restraining Order & Writ of Preliminary Injunction and Damages" in Special Civil Case No. 548. A temporary restraining order was issued on September 6, 1988 by the Executive Judge of that court.

On September 7, 1988, at 11:10 A.M., the court employees who were deputized to serve the restraining order arrived at the place where the auction sale was to be held. However, they were told by sheriff Garcia that the auction sale was finished at 10:30 A.M. yet, and that a certificate of sale for each of the personal properties to be auctioned on that day had already been issued to USIPHIL, INC., the judgment creditor, as the only bidder and purchaser.

After the hearing on the application for preliminary injunction was held on September 15, 1988, the parties were directed to submit simultaneous memoranda. Thereafter the case was deemed submitted for resolution. In the meantime, respondent USIPHIL, INC., filed a formal motion to dismiss the petition which the trial court granted on February 28, 1990.

On March 9, 1990, the petitioner appealed the order of dismissal to the Court of Appeals (CA G.R. No. 20799). On February 15, 1991, the Court of Appeals dismissed the appeal.

Petitioner's motion for reconsideration was denied by the Court of Appeals. Hence, this petition for review under Rule 45 of the Rules of Court.

The main issue raised by the petitioner is the supposed error of the Court of Appeals in piercing the veil of corporate entity and in holding that the third-party claimant, herein petitioner Sibagat Corporation, is not a separate and distinct entity from the judgment debtor, Del Rosario & Sons Logging Enterprises, Inc.

As pointed out by the Court of Appeals in its decision:

Gleaned from the records of this case, Mariano Rana, the third-party claimant for and in behalf of petitioner testified, among others, that he is the office manager of Sibagat Timber Corporation (p. 58, Record); that he is the administrative manager of Del Rosario and Sons Logging Enterprises, Inc. in a concurrent capacity (p. 50, id. ); that the officers of the Sibagat Timber Corporation are: Mr. Policarpio C. Del Rosario, President and General Manager; Miss Conchita C. Del Rosario, Vice-President and General Manager (p. 60, Id.); and the Directors are: Policarpio Del Rosario, Jr., Cristina Del Rosario, Mrs. Jasmin Del

Rosario, and Vicente C. Cel Rosario (pp. 61-63, id.). On the part of Del Rosario and Sons Logging Enterprises, Inc., the officers of the company are: Mr. Policarpio C. Cel Rosario, President; Miss Conchita Del Rosario, Vice-President/General Manager/Director and Treasurer; Mrs. Jasmin A. Del Rosario, Querubin Del Rosario, and Cristeta Del Rosario, respectively. (p. 29, Rollo.)

The circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises, Inc. hold office in the same building; (2) the officers and directors of both corporations are practically the same; and (3) the Del Rosarios assumed management and control of Sibagat and have been acting for and managing its business (p. 30, Rollo), bolster the conclusion that petitioner is an alter ego of the Del Rosario & Sons Logging Enterprises, Inc.

The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues (Jacinto vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to promote unfair objectives or otherwise, to shield them (Villanueva vs. Adre, 172 SCRA 876). Likewise, where it appears that two business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat them as identical (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).

The petitioner further contends that the Court of Appeals erroneously disregarded the decision of this Court in G.R. No. 84497 entitled, "Alfonso Escovilla, Jr., Cecilio M. Meris and Cuison Engineering and Machinery Co., Inc., Petitioner vs. The Hon. Court of Appeals, Sibagat Timber Corporation and Conchita del Rosario, Respondents," wherein this Court held that private respondents (herein petitioner) are the actual owners of the properties subject of execution by virtue of a sale in their favor by Del Rosario & Sons Logging Enterprises, Inc.

That allegation has no merit. The issue raised in that case was "whether or not an action for prohibition will prosper as a remedy for acts already accomplished." It was a procedural question, not the ownership of the properties subject of the execution.

The issue of ownership being raised now by the petitioner involves a factual question requiring an assessment of the evidence. This may not be in a petition for review under Rule 45 for it is not the function of this Court to examine and weigh evidence already considered in the proceedings below. Our jurisdiction is limited to

reviewing only errors of law that may have been committed by the lower courts (Navarra vs. CA, 204 SCRA 850).

Assuming arguendo that this Court in G.R. No. 84497 held that petitioner is the owner of the properties levied under execution, that circumstance will not be a legal obstacle to the piercing of the corporate fiction. As found by both the trial and appellate courts, petitioner is just a conduit, if not an adjunct of Del Rosario & Sons Logging Enterprises, Inc. In such a case, the real ownership becomes unimportant and may be disregard for the two entities may/can be treated as only one agency or instrumentality.

The corporate entity is disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Aguedo F. Agbayani Commercial Laws of the Philippines, Vol. 3, 1984 Ed., p. 30, citing decided cases.)

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED


THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though theyMOVED the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in February of 1988. 2 The actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3

http://www.lawphil.net/judjuris/juri1993/jun1993/gr_97212_1993.html#70603243

http://www.lawphil.net/judjuris/juri1993/jun1993/gr_97212_1993.html#70603243

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter. 6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership. 7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner

Yu could nonetheless assert his rights under his employment contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other

provision of this article, by the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)

In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding

partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the businessunder the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-visany claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General

Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

FIRST DIVISION

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

D E C I S I O N

HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal property found in the premises of petitioners sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondents employment, the project in which they were hired had

not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days.

On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory.2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents backwages amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4

The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/108734.htm#_edn4




Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary


4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.

Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers.7

We find petitioners contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice.9 So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate

personality of the corporation may be disregarded or the veil of corporate fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;









2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact.15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. it is very clear that the latter corporation was a continuation and successor of the first entity x x x. Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion.18






WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.

SO ORDERED.

Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.


EN BANC

G.R. No. L-35262 March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs.TAN BOON KONG, defendant-appellee.

Attorney-General Jaranilla for appellant.Alejandro de Aboitiz Pinaga for appellee.

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information reads as follows:

That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine Islands, the said accused, as corporation organized under the laws of the Philippine Islands and engaged in the purchase and the sale of sugar, "bayon," coprax, and other native products and as such object to the payment of internal-revenue taxes upon its sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused well knew that the total gross sales of said corporation during that year amounted to P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of P2,960.12, corresponding to 1½ per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said corporation. Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes — Quarterly reports of earnings. — The percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; and it shall be on the duty of every person conducting a business subject to such tax, within the same period as is allowed for the payment of the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the amount of the receipts or earnings of his business during the preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)

SEC. 2723. Failure to make true return of receipts and sales. — Any person who, being required by law to make a return of the amount of his receipts, sales, or business, shall fail or neglect to make such return within the time required, shall be punished by a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both.

And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten thousand pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed by the corporation and not by its officials or

agents. This view is in direct conflict with the great weight of authority. a corporation can act only through its officers and agent s, and where the business itself involves a violation of the law, the correct rule is that all who participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.)

In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was criminally liable for the violation of a statute by the corporation through he was not present when the offense was committed.

In the present case the information or complaint alleges that he defendant was the manager of a corporation which was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sale made by said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its consequences, provided that the allegation are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So ordered.

Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.


SECOND DIVISION

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner, vs.THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

Medina, Locsin, Coruña, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank Branch at San

Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court litigation.

The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower court based on the evidence presented at the trial of the case:

It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment.

At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. Her sugar cannot be exported without sugar quota allotment Sometimes, however, a planter harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter addressed to the branch manager on August 10,

1956, Mr. Tuazon informed the manager that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay said amount as the funds were in his folder which was kept in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the bank but he had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager understood and knew he had an approved loan available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would want for a notice from the manager as to the time when the bank needed the money so that Tuazon could sign the corresponding promissory note.

Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer

interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to replace the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has been granted several value of almost P80,000.00 for the agricultural years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified

refusal of petitioner to approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.

Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This

arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at that time was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.

It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must be utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

SECOND DIVISIONHERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428C. CRYSTAL, ANN GEORGIA C.SOLANTE, and DORIS C. Present:MAGLASANG, as Heirs of

Deceased SPOUSES RAYMUNDO QUISUMBING, J.,I. CRYSTAL and DESAMPARADOS Chairperson,C. CRYSTAL, CARPIO MORALES,

Petitioners, TINGA,VELASCO, JR., and

BRION, JJ.- versus -Promulgated:November 28, 2008BANK OF THE PHILIPPINE ISLANDS,Respondent. x----------------------------------------------------------------------------x D E C I S I O N TINGA, J.:

Before us is a Petition for Review[1] of the Decision[2] and Resolution[3] of the Court of

Appeals dated 24 October 2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886,

which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5,

of Cebu City.[4]

The facts, as culled from the records, follow.

On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00

loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the

Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel

mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses

executed in favor of BPI-Butuan a Continuing Suretyship [5] where they bound themselves

as surety of CCCC in the aggregate principal sum of not exceeding P300,000.00.Thereafter,

or on 29 March 1979, Raymundo Crystal executed a promissory note[6] for the amount

of P300,000.00, also in favor of BPI-Butuan.

Sometime in August 1979, CCCC renewed a previous loan, this time from

BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a promissory

note[7] dated 13 August 1979, signed by the spouses in their personal capacities and as

managing partners of CCCC. The promissory note states that the spouses are jointly and

severally liable with CCCC. It appears that before the original loan could be granted, BPI-

Cebu City required CCCC to put up a security.

However, CCCC had no real property to offer as security for the loan; hence, the spouses

executed a real estate mortgage[8] over their own real property on 22 September 1977.

[9] On 3 October 1977, they executed another real estate mortgage over the same lot in

favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.[10]

CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became

due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus,

BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The

foreclosure sale on the chattel mortgage was initially stalled with the issuance of a

restraining order against BPI.[11] However, following BPIs compliance with the necessary

requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was

consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied

to the loan from BPI-Butuan which had then reached P707,393.90.[12] Meanwhile, on 7 July

1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and

Corporate Affairs, offered to buy the lot subject of the two (2) real

estate mortgages and to pay directly the spouses indebtedness in exchange for the

release of the mortgages. BPI rejected IBAAs offer to pay.[13]

BPI filed a complaint for sum of money against CCCC and the spouses before

the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of

the loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI.

Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged

property.[14]

On 10 April 1985, the spouses filed an action for Injunction With Damages, With

A Prayer For A Restraining Order and/ or Writ of Preliminary Injunction.[15] The spouses

claimed that the foreclosure of the real estate mortgages is illegal because BPI should

have exhausted CCCCs properties first, stressing that they are mere guarantors of the

renewed loans. They also prayed that they be awarded moral and exemplary damages,

attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an

amended complaint,[16] additionally alleging that CCCC had opened and maintained a

foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and

that said FCSA was used as security for a P450,000.00 loan also extended by BPI-

Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses demanded

the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were unable

to withdraw from the said account to pay for their other obligations to BPI.

The trial court dismissed the spouses complaint and ordered them to pay moral and

exemplary damages and attorneys fees to BPI.[17] It ruled that since the spouses agreed to

bind themselves jointly and severally, they are solidarily liable for the loans; hence, BPI

can validly foreclose the two real estate mortgages. Moreover, being guarantors-

mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the

trial court found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard

branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at the request

of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but DesamparadosCrystal

failed to surrender the passbook because it was lost. The transferred FCSA in BPI-

Makati was the one used as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC

was no longer allowed to withdraw from FCDU SA No. 197 because it was already closed.

The spouses appealed the decision of the trial court to the Court of Appeals, but their

appeal was dismissed.[18] The spousesMOVED for the reconsideration of the decision,

but the Court of Appeals also denied their motion for reconsideration. [19] Hence, the

present petition.

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the

spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to

accept payment for the loan unless the P300,000.00 loan from BPI-Butuan would also be

paid. Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu City

loan, the loan obligation of the spouses was extinguished, petitioners contend.

The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged

lot from them and to directly pay BPI out of the proceeds thereof to settle the loan.

[20]BPIs refusal to agree to such payment scheme cannot extinguish the spouses loan

http://sc.judiciary.gov.ph/jurisprudence/2008/november2008/172428.htm#17549196

obligation. In the first place, IBAA is not privy to the loan agreement or the promissory

note between the spouses and BPI. Contracts, after all, take effect only between the

parties, their successors in interest, heirs

and assigns.[21] Besides, under Art. 1236 of the Civil Code, the creditor is not bound to

accept payment or performance by a third person who has no interest in the fulfillment of

the obligation, unless there is a stipulation to the contrary. We see no stipulation in the

promissory note which states that a third person may fulfill the spouses obligation. Thus,

it is clear that the spouses alone bear responsibility for the same.

In any event, the promissory note is the controlling repository of the obligation of the

spouses. Under the promissory note, the spouses defined the parameters of their

obligation as follows:On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x x [22]

A solidary obligation is one in which each of the debtors is liable for the entire obligation,

and each of the creditors is entitled to demand the satisfaction of the whole obligation

from any or all of the debtors. [23] A liability is solidary only when the obligation expressly

so states, when the law so provides or when the nature of the

obligation so requires.[24] Thus, when the obligor undertakes to be jointly and severally

liable, it means that the obligation is solidary,[25] such as in this case. By stating I/we

promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, the

spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand

payment from them, but they failed to comply with their obligation, prompting BPIs valid

resort to the foreclosure of the chattel mortgage and the real estate mortgages.

More importantly, the promissory note, wherein the spouses undertook to be solidarily

liable for the principal loan, partakes the nature of a suretyship and therefore is an

additional security for the loan. Thus we held in one case that if solidary liability was

instituted to guarantee a principal obligation, the law deems the contract to be one of

suretyship.[26] And while a contract of a surety is in essence secondary only to a valid

principal obligation, the suretys liability to the creditor or promisee of the principal is said

to be direct, primary, and absolute; in other words, the surety is directly and equally

bound with the principal. The surety therefore becomes liable for the debt or duty of

another even if he possesses no direct or personal interest over the obligations nor does

he receive any benefit therefrom.[27]

Petitioners contend that the Court of Appeals erred in not granting their counterclaims,

considering that they suffered moral damages in view of the unjust refusal of BPI to accept

the payment scheme proposed by IBAA and the allegedly unjust and illegal foreclosure of

the real estate mortgages on their property. [28] Conversely, they argue that the Court of

Appeals erred in awarding moral damages to BPI, which is a corporation, as well as

exemplary damages, attorneys fees and expenses of litigation.[29]

We do not agree. Moral damages are meant to compensate the claimant for any physical

suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded

feelings, moral shock, social humiliation and similar injuries unjustly caused. [30] Such

damages, to be recoverable, must be the proximate result of a wrongful act or omission

the factual basis for which is satisfactorily established by the aggrieved party.[31] There

being no wrongful or unjust act on the part of BPI in demanding payment from them and

in seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis

for award of damages in favor of the spouses.

Neither is BPI entitled to moral damages. A juridical person is generally not entitled to

moral damages because, unlike a natural person, it cannotEXPERIENCE physical suffering

or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.

[32] The Court of Appeals found BPI as being famous and having gained its familiarity and

respect not only in the Philippines but also in the whole world because of its good will and

good reputation must protect and defend the same against any unwarranted suit such as

the case at bench.[33] In holding that BPI is entitled to moral damages, the Court of

Appeals relied on the case of People v. Manero,[34] wherein the Court ruled that [i]t is only

when a juridical person has a good reputation that is debased, resulting in social

humiliation, that moral damages may be awarded.[35]


We do not agree with the Court of Appeals. A statement similar to that made by the Court

in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,[36]thus:

x x x Obviously, an artificial person like herein appellant corporation cannotEXPERIENCE physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have good reputation which, if besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied)

Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,

[37] and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol

Christian College of Medicine (AMEC-BCCM),[38] the Court held that the

statements in Manero and Mambulao were mere obiter dicta, implying that the award of

moral damages to corporations is not a hard and fast rule. Indeed, while the Court may

allow the grant of moral damages to corporations, it is not automatically granted; there

must still be proof of the existence of the factual basis of the damage and its causal

relation to the defendants acts. This is so because moral damages, though incapable of

pecuniary estimation, are in the category of an award designed to compensate the

claimant for actual injury suffered and not to impose a penalty on the wrongdoer.[39]

The spouses complaint against BPI proved to be unfounded, but it does not automatically

entitle BPI to moral damages. Although the institution of a clearly unfounded civil suit can

at times be a legal


justification for an award of attorney's fees, such filing, however, has almost invariably

been held not to be a ground for an award of moral damages. The rationale for the rule is

that the law could not have meant to impose a penalty on the right to litigate. Otherwise,

moral damages must every time be awarded in favor of the prevailing defendant against

an unsuccessful plaintiff.[40] BPI may have been inconvenienced by the suit, but we do not

see how it could have possibly suffered besmirched reputation on account of the single

suit alone. Hence, the award of moral damages should be deleted.

The awards of exemplary damages and attorneys fees, however, are proper. Exemplary

damages, on the other hand, are imposed by way of example or correction for the public

good, when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent

manner, while attorneys fees are allowed when exemplary damages are awarded and

when the party to a suit is compelled to incur expenses to protect his interest. [41] The

spouses instituted their complaint against BPI notwithstanding the fact that they were the

ones who failed to pay their obligations. Consequently, BPI was forced to litigate and

defend its interest. For these reasons, BPI is entitled to the awards of exemplary damages

and attorneys fees.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals

dated 24 October 2005 and 31 March 2006, respectively, are hereby AFFIRMED, with the

MODIFICATION that the award of moral damages to Bank of the Philippine Islands

is DELETED.

Costs against the petitioners.

SO ORDERED.

Stonehill vs. Diokno

20 SCRA 383 (GR No. L-19550)

June 19, 1967

CJ Concepcion

Facts:

Upon application of the prosecutors (respondent) several judges (respondent) issued on

different dates a total of 42 search warrants against petitioners (Stonehill et. al.) and/or

corporations of which they were officers to search the persons of the petitioner and/or

premises of their officers warehouses and/or residences and to seize and take possession

of the personal property which is the subject of the offense, stolen, or embezzled and

proceeds of fruits of the offense, or used or intended to be used or the means of

committing the offense, which is described in the application as violation of Central Bank

Laws, Tariff and Customs Laws, Internal Revenue Code and the Revised Penal Code.

Petitioners filed with the Supreme Court this original action for certiorari, prohibition and

mandamus and injunction and prayed that, pending final disposition of the case, a writ of

preliminary injunction be issued against the prosecutors, their agents and representatives

from using the effect seized or any copies thereof, in the deportation case and that

thereafter, a decision be rendered quashing the contested search warrants and declaring

the same null and void. For being violative of the constitution and the Rules of court by:

(1) not describing with particularity the documents, books and things to be seized; (2)

money not mentioned in the warrants were seized; (3) the warrants were issued to fish

evidence for deportation cases filed against the petitioner; (4) the searches and seizures

were made in an illegal manner; and (5) the documents paper and cash money were not

delivered to the issuing courts for disposal in accordance with law.

In their answer, the prosecutors (respondent) alleged; (1) search warrants are valid and

issued in accordance with law; (2) defects of said warrants, were cured by petitioners

consent; and (3) in any event the effects are admissible regardless of the irregularity.

The Court granted the petition and issued the writ of preliminary injunction. However by a

resolution, the writ was partially lifted dissolving insofar as paper and things seized from

the offices of the corporations.

Issues:

1.) Whether or not the petitioners have the legal standing to assail the legality of search

warrants issued against the corporation of which they were officers.

2.) Whether or not the search warrants issued partakes the nature of a general search

warrants.

3.) Whether or not the seized articles were admissible as evidence regardless of the

illegality of its seizure.

Held:

I

Officers of certain corporations, from which the documents, papers, things were seized by

means of search warrants, have no cause of action to assail the legality of the contested

warrants and of the seizures made in pursuance thereof, for the simple reason that said

corporations have their respective personalities, separate and distinct from the

personality of herein petitioners, regardless of the amount of shares of stock or of the

interest of each of them in said corporations, and whatever the offices they hold therein

may be. Indeed, it is well settled that the legality of a seizure can be contested only by the

party whose rights have been impaired thereby, and that the objection to an unlawful

search and seizure is purely personal and cannot be availed of by third parties.

Officers of certain corporations can not validly object to the use in evidence against them

of the documents, papers and things seized from the offices and premises of the

corporations adverted to above, since the right to object to the admission of said papers

in evidence belongsexclusively to the corporations, to whom the seized effects belong,

and may not be invoked by the corporate officers in proceedings against them in their

individual capacity.

II

The Constitution provides:

The right of the people to be secure in their persons, houses, papers, and effects against

unreasonable searches and seizures shall not be violated, and no warrants shall issue but

upon probable cause, to be determined by the judge after examination under oath or

affirmation of the complainant and the witnesses he may produce, and particularly

describing the place to be searched, and the persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probablecause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized.

Search warrants issued upon applications stating that the natural and juridical person

therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws,

Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had

been alleged in said applications. The averments thereof with respect to the offense

committed were abstract. As a consequence, it was impossiblefor the judges who issued

the warrants to have found the existence of probable cause, for the same presupposes

the introduction of competent proof that the party against whom it is sought has

performed particularacts, or committed specific omissions, violating a given provision of

our criminal laws.

General search warrants are outlawed because the sanctity of the domicile and the

privacy of communication and correspondence at the mercy of the whims caprice or

passion of peace officers.

To prevent the issuance of general warrants this Court deemed it fit to amend Section 3 of

Rule 122 of the former Rules of Court by providing in its counterpart, under the Revised

Rules of Court that "a search warrant shall not issue but upon probable cause in

connection with one specific offense." Not satisfied with this qualification, the Court added

thereto a paragraph, directing that "no search warrant shall issue for more than one

specific offense."

Seizure of books and records showing all business transaction of petitioners persons,

regardless of whether the transactions were legal or illegal contravened the explicit

command of our Bill of Rights - that the things to be seized be particularly described - as

well as tending to defeat its major objective the elimination of general warrants.

III

Most common law jurisdiction have already given up the Moncado ruling and eventually

adopted the exclusionary rule, realizing that this isthe only practical means of enforcing

the constitutional injunctionagainst unreasonable searches and seizures. In the language

of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which

has been unlawfully acquired, is that exclusion is the only practical way of enforcing the

constitutional privilege. In earlier times the action of trespass against the offending official

may have been protection enough; but that is true no longer. Only in case the prosecution

which itself controls the seizing officials, knows that it cannot profit by their wrong will

that wrong be repressed.

The non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the

constitutional injunction against unreasonable searches and seizures. To be sure, if the

applicant for a search warrant has competent evidence to establish probable cause of the

commission of a given crime by the party against whom the warrant is intended, then

there is no reason why the applicant should not comply with the requirements of the

fundamental law. Upon the other hand, if he has no such competent evidence, then it

is not possible for the Judge to find that there is probable cause, and, hence, no

justification for the issuance of the warrant. The only possible explanation (not

justification) for its issuance is the necessity of fishing evidence of the commission of a

crime. But, then, this fishing expedition is indicative of the absence of evidence to

establish a probable cause.

The Court held that the doctrine adopted in the Moncado case must be, as it is hereby,

abandoned; that the warrants for the search of three (3) residences of herein petitioners,

as specified in the Resolution of June 29, 1962, are null and void; that the searches and

seizures therein made are illegal; that the writ of preliminary injunction heretofore issued,

in connection with the documents, papers and other effects thus seized in said residences

of herein petitioners is hereby made permanent; that the writs prayed for are granted,

insofar as the documents, papers and other effects so seized in the aforementioned

residences are concerned; that the aforementioned motion for Reconsideration and

Amendment should be, as it is hereby, denied; and that the petition herein is dismissed

and the writs prayed for denied, as regards the documents, papers and other effects

seized in the twenty-nine (29) places, offices and other premises enumerated in the same

Resolution, without special pronouncement as to costs.

Stonehill vs. Diokno

20 SCRA 383 (GR No. L-19550)

June 19, 1967

CJ Concepcion

Facts:

Upon application of the prosecutors (respondent) several judges (respondent) issued on

different dates a total of 42 search warrants against petitioners (Stonehill et. al.) and/or

corporations of which they were officers to search the persons of the petitioner and/or

premises of their officers warehouses and/or residences and to seize and take possession

of the personal property which is the subject of the offense, stolen, or embezzled and

proceeds of fruits of the offense, or used or intended to be used or the means of

committing the offense, which is described in the application as violation of Central Bank

Laws, Tariff and Customs Laws, Internal Revenue Code and the Revised Penal Code.

Petitioners filed with the Supreme Court this original action for certiorari, prohibition and

mandamus and injunction and prayed that, pending final disposition of the case, a writ of

preliminary injunction be issued against the prosecutors, their agents and representatives

from using the effect seized or any copies thereof, in the deportation case and that

thereafter, a decision be rendered quashing the contested search warrants and declaring

the same null and void. For being violative of the constitution and the Rules of court by:

(1) not describing with particularity the documents, books and things to be seized; (2)

money not mentioned in the warrants were seized; (3) the warrants were issued to fish

evidence for deportation cases filed against the petitioner; (4) the searches and seizures

were made in an illegal manner; and (5) the documents paper and cash money were not

delivered to the issuing courts for disposal in accordance with law.

In their answer, the prosecutors (respondent) alleged; (1) search warrants are valid and

issued in accordance with law; (2) defects of said warrants, were cured by petitioners

consent; and (3) in any event the effects are admissible regardless of the irregularity.

The Court granted the petition and issued the writ of preliminary injunction. However by a

resolution, the writ was partially lifted dissolving insofar as paper and things seized from

the offices of the corporations.

Issues:

1.) Whether or not the petitioners have the legal standing to assail the legality of search

warrants issued against the corporation of which they were officers.

2.) Whether or not the search warrants issued partakes the nature of a general search

warrants.

3.) Whether or not the seized articles were admissible as evidence regardless of the

illegality of its seizure.

Held:

I

Officers of certain corporations, from which the documents, papers, things were seized by

means of search warrants, have no cause of action to assail the legality of the contested

warrants and of the seizures made in pursuance thereof, for the simple reason that said

corporations have their respective personalities, separate and distinct from the

personality of herein petitioners, regardless of the amount of shares of stock or of the

interest of each of them in said corporations, and whatever the offices they hold therein

may be. Indeed, it is well settled that the legality of a seizure can be contested only by the

party whose rights have been impaired thereby, and that the objection to an unlawful

search and seizure is purely personal and cannot be availed of by third parties.

Officers of certain corporations can not validly object to the use in evidence against them

of the documents, papers and things seized from the offices and premises of the

corporations adverted to above, since the right to object to the admission of said papers

in evidence belongsexclusively to the corporations, to whom the seized effects belong,

and may not be invoked by the corporate officers in proceedings against them in their

individual capacity.

II

The Constitution provides:

The right of the people to be secure in their persons, houses, papers, and effects against

unreasonable searches and seizures shall not be violated, and no warrants shall issue but

upon probable cause, to be determined by the judge after examination under oath or

affirmation of the complainant and the witnesses he may produce, and particularly

describing the place to be searched, and the persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probablecause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized.

Search warrants issued upon applications stating that the natural and juridical person

therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws,

Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had

been alleged in said applications. The averments thereof with respect to the offense

committed were abstract. As a consequence, it was impossiblefor the judges who issued

the warrants to have found the existence of probable cause, for the same presupposes

the introduction of competent proof that the party against whom it is sought has

performed particularacts, or committed specific omissions, violating a given provision of

our criminal laws.

General search warrants are outlawed because the sanctity of the domicile and the

privacy of communication and correspondence at the mercy of the whims caprice or

passion of peace officers.

To prevent the issuance of general warrants this Court deemed it fit to amend Section 3 of

Rule 122 of the former Rules of Court by providing in its counterpart, under the Revised

Rules of Court that "a search warrant shall not issue but upon probable cause in

connection with one specific offense." Not satisfied with this qualification, the Court added

thereto a paragraph, directing that "no search warrant shall issue for more than one

specific offense."

Seizure of books and records showing all business transaction of petitioners persons,

regardless of whether the transactions were legal or illegal contravened the explicit

command of our Bill of Rights - that the things to be seized be particularly described - as

well as tending to defeat its major objective the elimination of general warrants.

III

Most common law jurisdiction have already given up the Moncado ruling and eventually

adopted the exclusionary rule, realizing that this isthe only practical means of enforcing

the constitutional injunctionagainst unreasonable searches and seizures. In the language

of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which

has been unlawfully acquired, is that exclusion is the only practical way of enforcing the

constitutional privilege. In earlier times the action of trespass against the offending official

may have been protection enough; but that is true no longer. Only in case the prosecution

which itself controls the seizing officials, knows that it cannot profit by their wrong will

that wrong be repressed.

The non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the

constitutional injunction against unreasonable searches and seizures. To be sure, if the

applicant for a search warrant has competent evidence to establish probable cause of the

commission of a given crime by the party against whom the warrant is intended, then

there is no reason why the applicant should not comply with the requirements of the

fundamental law. Upon the other hand, if he has no such competent evidence, then it

is not possible for the Judge to find that there is probable cause, and, hence, no

justification for the issuance of the warrant. The only possible explanation (not

justification) for its issuance is the necessity of fishing evidence of the commission of a

crime. But, then, this fishing expedition is indicative of the absence of evidence to

establish a probable cause.

The Court held that the doctrine adopted in the Moncado case must be, as it is hereby,

abandoned; that the warrants for the search of three (3) residences of herein petitioners,

as specified in the Resolution of June 29, 1962, are null and void; that the searches and

seizures therein made are illegal; that the writ of preliminary injunction heretofore issued,

in connection with the documents, papers and other effects thus seized in said residences

of herein petitioners is hereby made permanent; that the writs prayed for are granted,

insofar as the documents, papers and other effects so seized in the aforementioned

residences are concerned; that the aforementioned motion for Reconsideration and

Amendment should be, as it is hereby, denied; and that the petition herein is dismissed

and the writs prayed for denied, as regards the documents, papers and other effects

seized in the twenty-nine (29) places, offices and other premises enumerated in the same

Resolution, without special pronouncement as to costs.

EN BANC

[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.

San Juan, Africa, Gonzales & San Agustin, for Petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza for Respondents.

D E C I S I O N

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to order the return of the latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction prayed for therein.

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections

53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Vera’s aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon’s application for search warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to this Court.

The petition should be granted for the following reasons:chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court are:jgc:chanrobles.com.ph

"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized." (Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined by the judge or justice of the peace after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.

"No search warrant shall issue for more than one specific offense.

"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the warrant, personally examine on oath or affirmation the complainant and any witnesses he may produce and take their depositions in writing, and attach them to the record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself and not by others. The phrase "which shall be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce," appearing in the said constitutional provision, was introduced by Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The following discussion in the Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph

"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines

de la justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Señoria encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.

"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.

"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el menor.

x x x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must be under the obligation to examine personally under oath the complainant and if he has any witness, the witnesses that he may produce . . ."cralaw virtua1aw library

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation the complainant and any witnesses he may produce . . ."cralaw virtua1aw library

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of warrants except "upon probable cause." The

determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the absence of any rule to the contrary.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De Leon) and his witness (respondent Logronio). While it is true that the complainant’s application for search warrant and the witness’ printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the two any question the answer to which could possibly be the basis for determining whether or not there was probable cause against herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that notes of the proceedings before respondent Judge were not even taken. At this juncture it may be well to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judge’s chamber and informed the Judge that they had finished the depositions. Respondent Judge then requested the stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he can be charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained in his deposition and the affidavit executed before Mr. Rodolfo de Leon.

"Q And thereafter?

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

"A The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70 was thus limited to listening to the stenographer’s readings of her notes, to a few words of warning against the commission of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there was an examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal examination by the judge. It was precisely on account of the intention of the delegates to the Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his witnesses that the question of how much time would be consumed by the judge in examining them came up before the Convention, as can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner respondent Judge did not have the opportunity to observe the demeanor of the complainant and his witness, and to propound initial and follow-up questions which the judicial mind, on account of its training, was in the best position to conceive. These were important in arriving at a sound inference on the all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant issued "in connection with one specific offense," as required by Sec. 3, Rule 126?

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus we find the following:chanrob1es virtual 1aw library

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and provides that in the case of a corporation, partnership, or association, the official and/or employee who caused the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay the tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their classification the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business and Occupation).

Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable, because there the search warrants were issued for "violation of Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National Internal Revenue Code. The distinction more apparent than real, because it was precisely on account of the Stonehill incident, which occurred sometime before the present Rules of Court took effect on January 1, 1964, that this Court amended the former rule by inserting therein the phrase "in connection with one specific offense," and adding the sentence "No search warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill:jgc:chanrobles.com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant shall not issue but upon probable cause in connection with one specific offense.’ Not satisfied with this qualification, the Court added thereto a paragraph, directing that ‘no search warrant shall issue for more than one specific offense.’"

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of sale; telex and coded messages; business communications, accounting and business records; checks and check stubs; records of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970."cralaw virtua1aw library

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the things to be seized.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:jgc:chanrobles.com.ph

"The grave violation of the Constitution made in the application for the contested search warrants was compounded by the description therein made of the effects to be searched for and seized, to wit:chanrob1es virtual 1aw library

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals, typewriters, and other documents and/or paper showing all business transactions including disbursement receipts, balance sheets and related profit and loss statements.’

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights — that the things to be seized be particularly described — as well as tending to defeat its major objective: the elimination of general warrants."cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to

explain the purpose of the requirement that the warrant should particularly describe the place to be searched and the things to be seized, to wit:jgc:chanrobles.com.ph

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should particularly describe the place to be searched and the things to be seized. The evident purpose and intent of this requirement is to limit the things to be seized to those, and only those, particularly described in the search warrant — to leave the officers of the law with no discretion regarding what articles they shall seize, to the end that ‘unreasonable searches and seizures’ may not be made, — that abuses may not be committed. That this is the correct interpretation of this constitutional provision is borne out by American authorities."cralaw virtua1aw library

The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case.

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact — not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing tests. If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. In this event, the description contained in the herein disputed warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and withdrawals, records of foreign remittances, among others, enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of respondent Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this Court are the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration before an application for a writ of certiorari can be entertained was never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at

bar time is of the essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of which immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the deprivation of petitioners’ fundamental right to due process taints the proceeding against them in the court below not only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures. Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the

objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity . . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at least partly — as in effect admitted by respondents — based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents, papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition, as well as other assessments based on the documents, papers and effects seized under the search warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Makasiar, JJ., concur.

Reyes, J.B.L., J., concurs with Mr. Justice Barredo.

Castro, J., concurs in the result.


EN BANC

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs.PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of these companies' business activities.

2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise.

3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.

10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as was originally agreed upon." 4

d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission —

* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the companies;

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for; and disburses funds only as may be necessary;

5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order.

h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973

Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19

7) planning to elect its own Board of Directors; 20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten

properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." 24

b. Executive Order No. 1

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30

c. Executive Order No. 2

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that:

1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world." 31

Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and

4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication of * (the) Executive Order, * *. 32

d. Executive Order No. 14

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayanwhich shall have exclusive and original jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution,

reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime";37

a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, Connections or relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping centers,

condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world;" 40 and

2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos. 41

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country. 42

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos."43

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its possession or control said

property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other jurisdictions. 45

b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with the least possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but

the business operation as well. It is in fine the assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos."

d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more thaneighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided. 52

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies — sequestration, freezing, provisional, takeover, attachment and receivership — are provisional, temporary, designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevinsuits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case."65

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution67 treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public interest," 69 and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling necessity." " 70

10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by them are as follows:

1. Jose A. Rojas 1,248 shares

2. Severino G. de la 1,248 shares

Cruz

3. Emilio T. Yap 2,508 shares

4. Jose Fernandez 1,248 shares

5. Jose Francisco 128 shares

6. Manuel S. Mendoza 96 shares

7. Anthony P. Lee 1,248 shares

8. Hilario M. Ruiz 32 shares

9. Constante L. Fariñas 8 shares

10. Fidelity Management, Inc.

65,882 shares

11. Trident Management

7,412 shares

12. United Phil. Lines 1,240 shares

13. Renato M. Tanseco 8 shares

14. Fidel Ventura 8 shares

15. Metro Bay Drydock 136,370 shares

16. Manuel Jacela 1 share

17. Jonathan G. Lu 1 share

18. Jose J. Tanchanco 1 share

19. Dioscoro Papa 128 shares

20. Edward T. Marcelo 4 shares

TOTAL 218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and — except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation — all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76

14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was accomplished by a deed entitled "Contract of Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos that BASECO was —

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations;

2. By getting their replacements, the families cannot question us later on; and

3. We will owe no further favors from them. 87

He also transmitted to Marcos, together with the report, the following documents: 88

1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan;

6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in order for the company to meet loan obligations," and that —

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments tomake it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and Chairman Constante Fariñas of the National Development Company, directing them "to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines:

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z. Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it

was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 95

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding

shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which supposedly owns as aforesaid 65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation — which allegedly owns 136,370 shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % — all endorsed in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents."103

In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacañang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and

prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112

In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at

their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113

Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that —

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that

may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that —

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

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